New Delhi: India’s economy is likely to expand by 6.3-6.8 per cent in the coming fiscal, much lower than what is needed to become a developed country, and requires deregulation and reforms in areas like land and labour to stimulate growth, according to the government’s pre-Budget Economic Survey.
The state of the economy document, tabled in Parliament by Finance Minister Nirmala Sitharaman Friday, indicated that India’s world-beating growth is moderating and more needs to be done to achieve the near 8 per cent annual rate needed to achieve the Viksit Bharat target by 2047.
The 6.3 per cent to 6.8 per cent growth rate in 2025-26 (April 2025 to March 2026 fiscal year) compares to an estimated 6.4 per cent growth in the current year ending March 31 – the weakest since the pandemic – and 8.2 per cent in the past 2023-24 financial year.
“Rural demand backed by a rebound in agricultural production, an anticipated easing of food inflation and a stable macro-economic environment provide an upside to near-term growth,” said Chief Economic Adviser V Anantha Nageswaran, who along with his team in the finance ministry, authored the report.
The risks to India’s economic prospects next year are balanced, he added.
Geopolitical and trade uncertainties, along with possible commodity price shocks, pose headwinds to the economy, said Nageswaran, who had last year predicted a 6.5-7 per cent GDP growth in the 2024-25 fiscal.
The survey said India needs to grow at nearly 8 per cent over the next decade or two, and the investment rate must rise to 35 per cent of GDP from the current 31 per cent to meet the longer-term economic goal of a developed nation by 2047.
The IMF projects India to be a USD 5 trillion economy by FY28 and USD 6.3 trillion by FY30, with an annual nominal growth rate of 10.2 per cent in USD terms.
Calling for reinvigorating the internal engines of growth by enhancing economic freedom through deregulation, the report called for states to reduce the cost of compliance by liberalising standards and controls on businesses as well as cutting tariffs and feeds.
“Systematic deregulation is as critical, if not more, as investments in infrastructure and incentives to encourage innovation and create a viable Mittelstand i.e. India’s SME sector,” it added.
The focus on Mittelstand has played a pivotal role in the economic success of countries like Germany, Switzerland, Japan, and Singapore.
“Over-regulation stifles innovation and economic dynamism,” it said.
“In many instances, regulations, while intended to protect consumers, workers, and the environment, can unintentionally create barriers to entry, reduce competition, and slow the pace of innovation.”
Laws that affect the use of land, labour and building, are the right place to begin since these regulations affect decision-making in all enterprises, the survey said.
The pre-budget document predicted that food inflation is likely to soften in the January to March quarter as some vegetable prices will ease seasonally, along with the arrivals of new crops.
Retail inflation, it said, will “progressively” align with the Reserve Bank of India’s largest of 4 per cent rate.
This could, however, be derailed by any bad weather events and a rise in international commodity prices.
India’s retail inflation eased to a four-month low of 5.2 per cent in December 2024 but food inflation, which accounts for nearly half of the consumption basket, continued to remain high at 8.39 per cent, with vegetable prices rising at 26.56 per cent.
The survey said the global growth is expected to be slightly below trend, with the services sector performing well while manufacturing struggles in some regions. Inflationary pressures are easing globally, but geopolitical risks remain a concern.
India’s financial sector has remained resilient despite global uncertainties. Banking profitability has improved, with a narrowing gap between credit and deposit growth.
Capital markets have played a key role in capital formation, financialisation of savings, and wealth creation, it said, adding that IPO listings have surged sixfold between FY13 and FY24, with young investors driving equity market participation.
On the external front, it said, merchandise exports have grown moderately amid external demand slowdown, while imports have been strong due to domestic demand.
A strategic trade roadmap is essential for India to navigate shifting global trade dynamics marked by rising protectionism.
Commenting on the Survey, Rumki Majumdar, Economist, Deloitte India said, “Deloitte is slightly bullish on growth and predicts 6.5-6.8 per cent growth, backed by strong domestic demand and pick up in investments”.
Strong farm output and a resilient services sector are key drivers of India’s growth, but global shifts demand careful navigation, she said, adding that geo-economic fragmentation is reshaping supply chains as trade policies evolve in the West.
“To sustain momentum, India must enhance global competitiveness through structural reforms and deregulation.”
Aditi Nayar, Chief Economist, Head – Research & Outreach, Icra Limited, said, “In our view, the real GDP growth forecast of 6.3-6.8 per cent made by the Survey suggests that the Union Budget is likely to build in a nominal growth of 10 per cent for FY2026. We believe that assumptions around the tax revenue would be anchored to a similar nominal growth print when the Union Budget for FY2026 is presented tomorrow”.
PTI
